Albemarle and its customers are still moving towards long-term and variable price lithium contract structures as the market rebalances to higher price and long-term supply concerns, company executives said May 5.
Albemarle's Approach to Electric Vehicle Market Demand
“Given the very significant commitment that automotive manufactures are making on the electric vehicle side and the excitement that it brings with it, that has led to the question if the industry will be able to spool (capacity) up that quickly to meet that demand,” Eric Norris, the president of Albemarle’s lithium business segment, told analysts on an earnings call. “It’s just a basic concern in that sense, and it’s what’s driving long-term partnership conversations.”
Albemarle has preferred a long-term approach to contract agreements, Norris said, because it enables the company to forge closer partnerships with customers, pledge additional lithium capacity investments and tailor its output to suit particular applications and performance specifications.
“One of the plus points of the customer partnership approach is that using that commitment to us, we can make that [own] commitment to the product form they want,” he added. “There’s also a conversation about where they want it, and an ever-present concern and desire to have supply localization.”
Albemarle CFO Scott Tozier added that: Transitioning a portion of our prices to be variable, based on indices, rather than fixed price contracts, also we find provides benefits both to ourselves and our customers.
“Our segmented approach gives additional flexibility to customers while enabling Albemarle to maintain upside and returns on our growth investments,” he said. “We remain in negotiations with these customers to transition to contracts that have variable index reference pricing and these negotiations are ongoing and progressing nicely. If successful, that could represent additional upside to our current outlook for the lithium business.”
Sales of battery-grade lithium will account for a forecast of A$102 million of A$140 million of revenue from Orocobre's total lithium business for 2022, of which half will be under different variable pricing payments and 30 percent on fixed price contracts, Tozier added.
Albemarle's lithium sales totaled $550.3 million in the first quarter, contributing to almost half of the company's overall $1.13 billion in revenue for the period. Q1 lithium sales and total sales of the company were up year on year by 36% and 97%, respectively.
The specialty chemicals maker, based in Charlotte, North Carolina, also makes bromine and catalysts.
Albemarle net income came in at $253.4 million in Q1, compared to $95.7 million in Q1 2021.
